Dividend Growth Bunny: How Warren Buffett Become Wealthy and Successful

Wednesday, July 10, 2019

How Warren Buffett Become Wealthy and Successful

Many value investors out there probably know who Warren E. Buffett is. If you don’t know him yet, let me give a short summary of him. Warren Buffett is an American successful investor, a businessman as well as a benevolent philanthropist. He was born in August 30, 1930, and apparently, he is still alive as this article is written in the year of 2019. He is considered as one of the most successful investors in the world that inspired many people. Many value investors try to understand how he invests and replicate his strategy. I as a dividend growth and value investor am inspired by his success and teachings. Even though I had never met him in real life; however I became really inspired by him for his investment ideology and respect him for his benevolent philanthropist act to the society. As this article was written today (June 30, 2019), Warren E. Buffett has an estimated net worth of $87.5 billion USD making him the third richest person right before Bill Gates and Jeff Bezos. Having him to be one of the richest people in the world is not the reason why I idolized him so much. Warren Buffett is not the typical rich person that spent his money on materialistic things such as fancy cars, a huge mansion, or lavish yachts. He lives just like the typical average American who purchases his breakfast at McDonald every day before going to work. In addition, he still lives at the same modest home he purchased back in 1958 for $31,500 or about $250,000 if adjusted with inflation. Like I said, he is not the typical rich people who want to have lavish things and lifestyle but he is just a humble person that loves to build his business empire that will eventually go back to society. He pledged more than 99% of his wealth will go to philanthropy during his life or at death and he couldn’t be happier with that decision. I’m so amazed by his generosity since he has dedicated his life to building his wealth without much inheritance from his parents. He didn’t come from a wealthy family but an average middle-class family and through hard work and dedication; he has built the fortune he has today. I love building wealth and doing business just like Warren Buffett and believe that wealthy people who are in the 1% wealth list should donate at least 50% of their wealth before or after their death. 

My dad similar to Warren Buffet who started from nothing, and he is considered to be wealthy today; however I don’t see his wealth as my success. I believe in building my own scorecard and fortune just like my dad and Mr. Buffett, and I would not be upset if my parents decide to give away their wealth to charity later on. I mean, after all, I believe that their wealth is theirs and I don’t want them to feel obligated. However, if my dad let my brother and me to inherit his business legacy, I would still continue to expand his wealth. It would be better for me and my brother to grow the wealth since my dad has already built the tree for us which gives a tremendous head start. However, towards the future, if I become really wealthy, I might pledge to give away up to 50% of my wealth to charity after my death. Anyways let’s not get distracted about me being philanthropy; I’m still far from being in the 1% list!  Let’s go back to the topic of Warren Buffett. After understanding the stories of his success and the amount of wealth he accumulated, you readers might wonder how on earth he does it. I myself was curious about how Warren Buffett did it. After doing many bibliography studies and research about him, I learned how Warren Buffett became successful and wealthy therefore I’m here to share his stories with you guys.

Start from a Young Age
Warren E. Buffett has always been inspired with numbers and business since childhood. It’s as if he has it in his blood. Even when he was given allowance from his parents during his childhood, he always wanted to earn his own so that he could have more than the allowance that he received. At the age of 6, Warren Buffett has already started figuring out to make money. He made his first sales selling pack of chewing gum and climb up to selling sodas to his friends at school. He bought them in wholesale at cheaper price in order to sell pieces of them at a higher price giving him some profit. By age 11, he remembered purchasing his first stock. His father owned a small brokerage, and he spent his time watching and listening what investors were doing. Moreover, Warren Buffet loves reading and has been continuing reading as his hobby till today. One of his favorite books during his adolescent was “One Thousand Ways to Make $1000”. This book is full of brilliant ideas on how to make money through excellent salesmanship, hard work and resourcefulness. Most importantly, the book has taught little Warren the Power of Compound Interest, and inspired him to pursue many simple business ventures at young age. He mentioned that he would kill himself if he was not a millionaire before the age of 30.

Warren was so motivated to work tirelessly at various ventures such as collecting refund from recycling soda bottles, washing cars, delivering newspaper and selling lemonade. He used the saved up from all the hustle to purchase used pinball machines that he and his partner placed in different local stores. They asked the local stores if they were able to place their machines in their location in exchange for half the profit. Within a week, Warren had enough money to buy more pinball machines, which he then negotiated with another local store. He was always figuring out how to make money, save and reinvest his money, building a small empire before he was even
an adult. By the time Warren was 16 years old, he has accumulated a net worth of $6000, and that’s equivalent to $53,000 if compared to today’s term (2019). He continued to add to what he had already had, until he accumulated a small fortune. Years later, he used the money he had saved up to invest and build the empire he has today.

Warren had started to work hard and had invested his money at a very young age. This gave him the advantage to build great wealth. You readers especially the young ones who are reading this article should use this lesson as a foot step that the earlier you start working and building wealth through investment the better result you will have. The power of compound interest makes the small amount of wealth similar to the small snow ball rolling down the hill that eventually become a bigger and bigger snowball. So don’t waste your time on nonsense things and start being productive if you want to be successful and wealthy like Warren Buffett.


Meeting His Mentor
Young Warren initially did not want to attend college. It was his father that persuaded him to continue his education after high school. He first attended University of Pennsylvania where he kept complaining that he knew more than his professors. So he then transferred to the University of Nebraska, where he graduated with a degree in business in three years at the age of 19. Warren later wanted to continue his education, so he applied to Harvard but was rejected. But don’t get the wrong idea, I think Warren being rejected to Harvard was the luckiest thing that happen to him. Warren later came across a book called “The Intelligent Investor” by Benjamin Graham, and realized that the author was a professor in Columbia University. It was because of this real find; he decided to enroll to Columbia University where he met his mentor Benjamin Graham, who would be his mentor and professor. Benjamin Graham is known to be “the father of value investing”. He utilized the stock market for himself and his clients to make more money without risk. He created many principles on how to invest safely which principles are still being used today by many modern value investors such as Warren E. Buffett himself. I believe Warren Buffett being able to meet his mentor was a key to his success. Without him being able to meet his mentor, he wouldn’t be the greatest investor we know today.

Having to meet the right mentor, Warren was able to analyze and pick the right stock for his investment using value investing technique. He mentioned that Graham was the one that taught him “the two rules of investing” which first rule is not to lose money, and the second rule to not forget rule number one. In addition, Warren learned that owning a stock means you own a little portion of the company. This gives Warren a different perspective in viewing a company stock. He no longer sees the stock price fluctuation as bad thing but as an advantage of owning portion of the company when the value of the stock is trading in discount. This enables him to analyze the value of company through the financial statement and applying financial metrics to evaluate a company margin of safety. Applying this technique allowed Warren to only invest in companies that are not overpriced.


Entering the Investment Field
After graduating for Columbia University, Warren had been working as an investment salesman. He first was denied to work for his mentor. However, he eventually was called by Benjamin Graham to work for him. Warren immediately went to New York without even asking the salary since he idolized his mentor so much. Warren Buffett learned a lot from his mentor just by working with him every day.

After mastering the skills he had learned from his mentor, Warren decided to open up partnership with his close friends and family. The partnership had certain restriction where Warren himself would invest only $100 and, through re-invested management fees, Warren would grow his stake ownership in the partnership. Warren would take half of the partnership’s gain over 4% and would repay the partnership a quarter of any loss incurred. Warren continued opening new investment partnership since he made good tracking record performance with his investment techniques. He applied value investing technique that he learned from his mentor to purchase undervalue company in the stock market. By 1959, Warren Buffett had seven partnerships opened and had a 9.5% stake in more than a million dollar of partnership assets. Three years later, Warren who was 30 years old at that time became a millionaire and decided to combine the partnerships into one single entity. Warren E. Buffet had reached his childhood dream of becoming a millionaire at the age of 30, but this doesn’t stop Warren Buffett. He continued seeking new ventures, and found an opportunity to invest in a New England textile company called Berkshire Hathaway, and Warren gradually shifted the primary business’s focus to become a holding company that acquire many different companies. Today Berkshire Hathaway is a multi-billion dollar holding company that owns many businesses.


Lives Modest Life Style
Warren Buffett has always been a humble business man. Even after he became wealthy long ago, he didn’t change much of the way he live his life. He lives in the same home he purchased before he was wealthy and drives a modest car. His house is only 6,570 square feet that has five bedrooms and two bathrooms. Most people who became rich would want to purchase luxury toys that they can show it off to people. However, Warren didn’t buy lavish materialistic things like fancy cars, luxury mansion, big yachts with a helipad on it, or anything that require huge expenses to upkeep those things. He enjoys activities that don’t require much cost. He spends nearly 80% of his time reading, and analyzing stocks. And during his free time, he spends 8 hours a week playing the game bridge. He enjoys the challenges that the game of bridge presents. I believe Warren’s modest life style enable him to acquire the fortune he built since young. Having not much assets that depreciate in value and high upkeep expenses enable him to get richer and richer. He doesn’t find interest in those hobbies like many other rich people would. Instead, he enjoys building his holding company to grow bigger using companies stocks that he acquires. He mentioned that Berkshire Hathaway is like an art, a canvas that he can enjoys painting every day.

I’m pretty amazed of Warren Buffet’s character. Even with such wealth, he still sticks to his principles and doesn’t have the temptation to purchase cool luxury things. If I were a billionaire, I think I would have spent some of the money on luxury toys and expensive hobbies. But I guess Warren enjoys doing the things he does every day. He mentioned that every day going to work feels as if he is tap dancing and recommend others to pick the job that one is passionate about.


In Conclusion
From this article I just shared, I hope you readers now understand the background to Warren Buffett’s success and wealth. He had worked hard acquiring wealth at such a young age that made him the person he is today. I believe anyone can replicate some part of his methods to building wealth. It’s not an easy task since some might argue that living frugally like Warren Buffett is impossible. A person who is wealthy would eventually be tempted to do some expensive hobbies or activities. Moreover, majority people would like to value quality experiences in life before they passed away. I understand people don’t want to miss out in life just by working and investing all the time. I know there are many other valuable experiences out there besides success and wealth. There is a saying that money doesn’t buy happiness, however I believe just applying some of his strategies can help an average person be wealthy and have a comfortable life. You don’t have to replicate the way he live his life, but applying some of his methods to your life could do good to your financial goal. Starting early career, modest life style and discipline investing could compound to great wealth if your goal is to have financial freedom and early retirement. 

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